The natural gas market has witnessed a notable resurgence, suggesting a potential bullish trend after recent fluctuations. Over the past two weeks, gas futures have shown remarkable strength, recovering from a drop to $2 lows on April 28, which resulted in an 11% decline. Since then, gas futures have experienced steady gains, with a 6% increase the following week and a substantial 15% surge in the current week.
The Recent Gas Rally
During the latest trading session on Thursday, the front-month contract at the hub settled at $2.5920 per metric million British thermal units, marking a significant 10% daily increase of 22.7 cents. Moreover, the benchmark gas contract reached a two-month high of $2.63, surpassing the mid-$2 level that has acted as a resistance since March.
The recent gas rally is primarily driven by a perceived improvement in the fundamentals of natural gas, which remains a popular fuel choice for indoor temperature control, despite the prevailing supply glut.
Positive Signs in Gas Storage
Last week, the Energy Information Administration (EIA) reported a rise in U.S. natural gas storage by 99 billion cubic feet (bcf). This increase was smaller than anticipated, and it has generated a boost in market sentiment, as it signals a need for reduced stockpile growth and increased demand.
Comparing the gas inventories for the week ending May 12 with the previous week, there was a notable improvement. The increase in gas inventories for the most recent week reached 99 bcf, while the previous week recorded an increase of 78 bcf.
According to Gelber & Associates, a Houston-based advisory firm for energy markets, the market had expected an injection of 108-109 bcf. The release of the lower-than-expected build immediately prompted a rally in prompt prices.
Potential Bullish Sentiment
Analysts at Gelber & Associates have pointed out that if the market surpasses the 50-day moving average, it could signify bullish sentiment that may drive prices towards the $3.00/mmBtu level. This price level has historically faced significant resistance.
Despite the smaller-than-anticipated build in gas inventories last week, the current rise has brought the total gas stored in underground caverns in the United States to 2.24 trillion cubic feet (tcf). This represents a substantial 30.3% increase compared to the previous year and a significant 17.9% above the five-year average of 1.9 tcf.
Conclusion
The recent resurgence in natural gas prices indicates the potential return of a bullish market trend. Despite an oversupply situation, improving fundamentals and positive signals in gas storage have driven the recent rally. While market participants remain watchful for sustained momentum, surpassing the 50-day moving average could fuel further price increases, possibly pushing towards the $3.00/mmBtu level. It is evident that natural gas continues to hold its position as a favored fuel for indoor temperature control in the United States, and its recent performance suggests a positive outlook for the future.
